It is already better today than what it was six months back: Shikha Sharma

Axis Bank, which has a sizable exposure in core sector projects — implementation of which has been affected due to supply side issues — sees issues related to coal linkages and others getting sorted out. Shikha Sharma, managing director and chief executive officer, discusses the bank’s strategies and priorities with Neelasri Barman and Manojit Saha. Edited excerpts:

Axis Bank has a sizeable exposure to the infrastructure sector. Given the bottlenecks that such projects are facing, are you concerned?

I expect the supply side bottlenecks to be sorted out in the next few months. While operating assets may have faced some stress in the last few months, things will be much better going forward. The projects, which are facing problems today, are operating power projects. Those under implementation will come a year later. By then problems such as state electricity board (SEB) restructuring issues will get sorted out. It is going to be a better tomorrow. In fact, it is already better today than what it was six months back.

Which are the segments that are seeing maximum stress?
That is primarily from large corporate segment.

What kind of loan restructuring you see during the remaining part of the year?
We are likely to restructure Rs 1,000 crore per quarter.

According to some analysts, the proportion of borrowers in large and medium corporates with ‘A’ and above rating has come down for Axis Bank. Do you think you need to address this?
A large part of that increase is because of project loans. All project loans are rated three notch lower. So, the highest rating we can have for project loans is ‘BBB’. This is the nature of the business.

Is slack credit demand impacting your fee income?
Our fee income comes from diverse streams. No single fee account contributes more than 10-12 per cent of our fee pool. This year, our fee income growth has been slower than in the past. But we are still running at a double-digit growth this year.

Do you see margins coming under pressure due to this?
No, we do not see the situation getting worse. Our margins will be in the region of 3.25-3.5 per cent. We are one of the most profitable banks in terms of return on equity. That comes in an environment of net interest margins (NIMs) being in the range of 3.25-3.5 per cent.

Most banks are focusing on retail business, as corporate loan demand is still sluggish. Are you going to do the same?
Home loan is the largest portion of our retail assets book. It is an important part for us. We have never been a price aggressor in any of these products and we do not believe that it pays to be a price aggressor. When you participate in the market place, you have to be competitive. Given the fact that Axis Bank has a strong retail liability side, we are in a position to be reasonably competitive in the marketplace.

What is the break-up of retail and corporate loans?
Retail contributes 26 per cent of the total loan book. Our strategic objective is to grow that to 30 per cent by 2015.

Axis Bank had launched a fixed rate home loan product. How has been the response?
The response is not much. Customers look at the nominal rate. If the fixed rate is higher than the floating rate, they take the floating rate. The fixed rate will be higher than the floating rate if you have a yield curve which is positively sloped.

What is the status of Axis Bank’s merger proposal with Enam Securities?
The merger has been completed.

What will be the focus area of this new entity?
Axis Bank has had a strong corporate banking franchise, in terms of project finance, debt capital market, working capital, transaction banking. The missing products in our portfolio were, fundamentally, equity, capital markets and M&A and private equity. That is why we acquired Enam. That will be the primary focus of that business.

You have a substantial exposure to GMR Infra, which is developing the Male airport project. You must be quite concerned now.
Let me avoid commenting on client-specific issues.